It is unlikely the European Union will face a new cutoff of gas supplies from Russia in March if Ukraine fails to pay its gas bills, the European Commission said. “I personally don’t think so. None of the parts want to have another crisis again, but it’s a fact that there are some financial problems on the Ukrainian side so we’ll see what happens. They have until Saturday next week to pay (March 7),” Ferran Tarradellas Espuny, spokesman for EU Energy Commissioner Andris Piebalgs, told New Europe on February 26.

Earlier on February 26, the Russian gas monopoly was considering cutting off gas supplies to Ukraine in a row over Naftogaz Ukrainy’s debts, Kommersant reported. Concerns are growing at Gazprom that the Ukrainian gas distributor could miss a USD 400 million payment due by March 7, forcing Gazprom to cut off gas supplies to Ukraine on March 8. Kommersant quoted a source as saying the head of Gazprom’s Finance Department, Andrey Kruglov, has expressed concern about the situation with payments by natural gas consumers in Ukraine. “If USD 400 million has not been paid by March 7, we will have to again switch off the gas to Ukraine March 8,” the source quotes Kruglov as saying at a meeting of the Gazprom management on February 24.

The situation follows an earlier gas dispute between Russia and Ukraine in January which sparked widespread shortages in the EU. The Gas War was finally resolved when Gazprom and Naftogaz signed a long-term gas supply contract. Ukraine will now have to pay market prices for its gas. According to the contract, Gazprom also has the right to demand 100 percent pre-payment for gas upon the first missed payment.

Naftogaz has been unable to collect overdue gas bills from customers who have been spoiled for more than a decade by low gas prices by numerous Ukrainian governments, which have, in cahoots with the Kremlin, manipulated gas prices for political reasons. Another aspect of Naftogaz payments to Gazprom is the additional pressure on the hryvnia that these payments will cause. Asked by New Europe if the European Union was considering lending Ukraine the money to avoid another crisis, the EU energy spokesman said, “This is not something we are considering at this point in time.” Tarradellas Espuny confirmed that the EU and Ukraine plan to hold a conference devoted to Ukraine’s gas and transport system modernisation involving the EU representatives on March 23 in Brussels.

Russia could demand that Ukraine pay the debt by allowing Gazprom to purchase a share of the Ukrainian gas pipeline to Russia. “Gazprom has sets its eyes on our transportation pipeline to the EU for years,” a Ukrainian official told New Europe, talking on condition of anonymity. “There are likely to bring this issue up again,” he said.

The prospect of a repeat of January’s gas dispute with Ukraine, after Gazprom set the March 7 deadline “for arrears to be cleared, may temporarily boost the gas price in Europe and, along with it the price of Novatek,” Russia’s second largest gas firm, Chris Weafer, chief strategist at Moscow’s UralSib investment bank, wrote in a note to investors on February 27.

However, if Russian gas supplies to the EU were to be blocked once again, Ukraine might lose all credibility as a transit country. It may also give a coup de grace to Gazprom‘s reputation as a reliable supplier, hampering prospects for future EU-Russian energy cooperation. A deal on Russian-EU energy cooperation is seen as vital for Gazprom and the Russian gas industry, which is experiencing increasing economic hardship in light of the global economic crisis and needs European investments to speed up projects like the Nord Stream pipeline to Germany and the Shtokman field in the Barents Sea.

Deputy speaker in the Russian State Duma, Valery Yazev, was quoted as saying by the press that Russia is ready to start elaborating on the new energy agreement which is meant to replace the hapless EU Energy Charter. Russia has long refused to ratify the EU document regulating relations between producers and consumers in Europe, arguing that it is not beneficial to Gazprom.

The Energy Charter has long been a stumbling stone in Russia-EU relations and is likely to be discussed in the upcoming Russian-European Union summit to be held in Khabarovsk in the Russian Far East on May 21-22.